November 13, 2006

Water for Sale

The Economistwants to know: Should people be required to pay more for their water? Currently, a large number of developing countries massively subsidize water on the idea that water is a right, not a commodity. The neo-liberal argument in favor of pricing sounds fairly persuasive on its face:

Whether or not water is a right, it is also a commodity which... is costly to provide. If those costs are not covered, water will not be supplied. Moreover, unlike most human rights, a litre of H2O enjoyed by one person cannot be consumed by anyone else. If some people underpay and overconsume the stuff, there will be less of it for others.

The United Nations Development Programme has gotten on board with this idea, in its most recent report, which notes that 1.1 billion people lack access to clean water, that 1.8 million children die each year from diarrhea, and increasing prices in some places would lead to better rationing and fairer distribution. The Economist goes even further, suggesting that private companies should be allowed to manage water supplies. Governments, of course, would have to offer subsidies for the poor so that they could afford all this newly-expensive water. No word on whether this would actually happen, though.

There are two different issues here—pricing and privatization. The second has been a disaster in the past. Private water-management companies aren't always more efficient than public utilities, for one. When Bechtel and Suez, a French company, won contracts to manage the abysmal waterworks in Manila in 1997, everyone hoped they would take care of the filthy pipes and rampant shortages. At first, there were some improvements. In more recent years, shortages have returned, pipes are dirty again, and the corporations have jacked up water rates dramatically. It's all quite mixed: Things got better for some people, worse for others.

Overly rapid price increases are the biggest problem with privatization. In 2001, the government of Ghana agreed to sell off its water supply in order to receive an IMF loan. Water rates bolted upwards, and in some cases reached $110—this in a country where the annual income was less than $400. Advocates of price increases will claim that taxpayer money that had once been spent subsidizing the utilities can now be given to the poor, to let them afford water. Sort of like how the winners of free trade can "theoretically" compensate the losers. In the real world, that doesn't always happen. Same thing in Bolivia.

Chile seems to be one exception. Water has been privatized, and poor households receive a check from the government that covers up to 85 percent of the monthly water bill. By the UNDP's account, it works pretty well. (Here's a strong dissent.) But "such an approach requires a government that can identify the poor, and a firm that can meter their consumption." In places such as Ghana, or Bangladesh, or even India, that's not always feasible. More common is the horror story in South Africa, where, after privatization, corporations shut off the water in millions of households to force people to pay. Most of those people didn't get subsidies; they got a massive cholera outbreak instead.

Water is, of course, a big business. According to a useful Fortune article on the topic, the private water industry is already half as large as the oil industry—and only about 5 percent of the world's water has been turned over to private owners so far. Intentionally or not, the IMF has helped corporations get their hands on some of this business, by telling countries like Ghana to sell off their water utilities if they want to receive loans. Sometimes certain regions benefit—as with Buenos Aires. Sometimes it's quite the opposite.

The way I see it, governments don't need to sell off their water supplies to put perfectly good conservation programs in place. Here's a list of alternatives to privatization, all of which focus on providing universal access to water and sanitization, and none of which require auctioning off water utilities to private companies or raising prices to painful levels. Foreign aid would help too. It's a tricky issue, though. And while I'm at it, I may as well recommend Michael Specter's excellent New Yorkerpiece on the prospect of a global water shortage, although he doesn't really discuss privatization.